Excerpt:direct taxation - penalty - section 271 of income-tax act, 1961 - assessed filed return after due date - income-tax officer commenced penalty proceedings under section 271 (1) (a) - assessed contended that delay caused due to delay in audit and finalization of accounts - appeal before income-tax appellate tribunal - appellate tribunal set aside penalty on ground that it was for department to prove reasonable cause on part of assessed before levy of penalty - to decide existence of reasonable cause court directed tribunal to refer matter to high court. - - the former failed to lay that before the income-tax officer. gangaram chapolia [1976]103itr613(orissa) ,observed that taxing authorities must be satisfied that the failure to furnish the return in time was without reasonable cause..........any application seeking extension of time was moved. the return was filed on may 28, 1975, and the income assessed has been around rs. 1,34,000.2. this was the second year of the assessed's business and in the earlier year also the return was filed on august 23, 1974, instead of the due date of july 31, 1973 (30-6-73). a penalty for this delay was levied under section 271(1)(a) of the income-tax act, 1961, but the same was quashed by the income-tax appellate tribunal. for the present assessment year 1974-75, the income-tax officer again commenced penalty proceedings for the delay in filing the return under section 271(1)(a) and issued a show-cause notice to the assessed, requiring it to appear on a particular date before him. no appearance was made and as such a penalty of rs. 18,360 was.....

Judgment:

D.R. Khanna, J.

1. The accounting year of the firm, Shanta Electrical Industries which has been supplying electrical goods mainly to the Railways, ended for the year relevant to the assessment year 1974-75, on May 31, 1973. It had 14 (13) months at its disposal up to July 31, 1974 (30-6-74) to file its return for this year. This was not done, nor any application seeking extension of time was moved. The return was filed on May 28, 1975, and the income assessed has been around Rs. 1,34,000.

2. This was the second year of the assessed's business and in the earlier year also the return was filed on August 23, 1974, instead of the due date of July 31, 1973 (30-6-73). A penalty for this delay was levied under section 271(1)(a) of the Income-tax Act, 1961, but the same was quashed by the Income-tax Appellate Tribunal. For the present assessment year 1974-75, the Income-tax Officer again commenced penalty proceedings for the delay in filing the return under section 271(1)(a) and issued a show-cause notice to the assessed, requiring it to appear on a particular date before him. No appearance was made and as such a penalty of Rs. 18,360 was levied at the rate of 2% per month of tax for nine months' delay. In appeal, the Appellate Assistant Commissioner sustained this penalty. During the course of the proceedings, the assessed brought out that it had, in fact, submitted a reply to the show-cause notice and possessed a receipt for the same, but the same had not been taken into account by the Income-tax Officer. It appeared that the reply had been submitted at the counter with the receipt clerk and not before the Income-tax Officer at the time of the hearing. The former failed to lay that before the Income-tax Officer. The Appellate Assistant Commissioner, thereforee, considered that reply and Explanationn of the assessed and after providing a hearing, maintained the penalty. Two reasons were given by the assessed. One was that there was delay in finalisation of the accounts as confirmations of the balances from the Government Departments had not been received. In this manner, damages paid for loss in transit, transit charges and goods returned could not be accounted for. The other reason was that the auditors of the assessed did not complete the audit till May 21, 1975, and as such the return was filed on May 28, 1975. It was admitted that the accounts were given for audit to the auditors only in April, 1975.

3. In second appeal, the Income-tax Appellate Tribunal, quashed the penalty. It was first noted that the quantum of penalty, even if exigible, would work out to Rs. 14,042 as against Rs. 18,360 imposed by the Income-tax Officer. The Tribunal next observed that, according to the reported case law, it was for the Department to show absence of reasonable cause on the part of the assessed before any penalty was exigible under section 271(1)(a) of the Act. It was also accepted that the assessed could not finalise its accounts and arrive at correct figures of profit and loss unless confirmations were received from the Government Departments and the accounts too had been audited. The penalty imposed was, thereforee, set aside.

4. The Commissioner of Income-tax then moved a petition under section 256(1) of the Income-tax Act, 1961, for reference of a number of questions, said to be of law, to the High Court. The same, however, was rejected by the Tribunal, firstly, on the ground that what had been decided was a question of fact and, secondly, because there were already decisions of the Delhi High Court covering the subject, and any further reference of the same point would be wasting the judicial time of the court.

5. Feeling aggrieved, the Commissioner of Income-tax has now moved the present petition under section 256(2) of the Income-tax Act, 1961, in which reference has been sought of the following questions :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that it is for the Department to establish that delay in filing the return was without reasonable cause under section 271(1)(a) of the Income-tax Act, 1961?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the return could not be filed without the audit having been completed although there is no statutory or other requirements for the accounts of the assessed-firm being audited?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in law in holding that the assessed may not close his accounts till confirmations by the various Government offices were received to whom the goods have been supplied?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in ignoring the fact that the assessed had not filed any application seeking extension of time for filing the return although he was an existing assessed and was conscious of the fact of filing the return?

5. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that none of the lower authorities, in fact, considered the Explanationn of the assessed dated March 6, 1979, and none of them have recorded whether the grounds recorded in the Explanationn constitute reasons for the delay in filing the return although the Appellate Assistant Commissioner has specifically recorded the full facts in his order and came to the conclusion that the penalty was exigible in this case? Is not the order of the Tribunal perverse as it has ignored a fact on record?

6. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in cancelling the penalty as levied by the Income-tax Officer (and confirmed by the Appellate Assistant Commissioner with certain modifications in the quantum)?'

6. At the time of the hearing of this petition, none appeared from the side of the assessed. We have, thereforee, heard the learned counsel for the Commissioner.

7. At the outset, it must be said whether the Tribunal's adopting a legal approach in observing that it lay upon the Department to show absence of reasonable cause on the part of the assessed before any penalty under section 271(1)(a) of the Act could be exigible, gives rise to a question of law. Ex facie, the approach that the Revenue must establish the negative, may not be sustainable inasmuch as when some facts are within the knowledge of a particular person, it is generally for that person to bring them out. Section 106 of the Evidence Act contains this salutary principle and even though the technical rules of evidence are not essentially applicable to income-tax proceedings, it cannot be ignored that the rule has sound practical basis. Once, however, such person has come out with some reasons, it is then for the Revenue to show that they are not acceptable. The appraisement may then be by way of preponderance of probabilities. Any ipse dixit or fanciful Explanationn may not stand this test. It has been now recognised in a number of decisions that means read in the sense in which the same is required for an offence under the criminal law is not an essential ingredient for levy of penalty under section 271(1)(a) of the Act. (See in this regard CIT v. Gujarat Travancore Agency : [1976]103ITR149(Ker) [FB) and Additional, CIT v. Dargapandarinath Tuljayya & Co. : [1977]107ITR850(AP) [FB]). The Orissa High Court in another Full Bench decision in CIT v. Gangaram Chapolia : [1976]103ITR613(Orissa) , observed that taxing authorities must be satisfied that the failure to furnish the return in time was without reasonable cause and that the burden of proof of reasonable cause is on the assessed as the matter is within his special knowledge and this burden can be discharged by preponderance of probabilities as in a civil case and not necessarily by proof beyond reasonable doubt. The Madras High Court too in V. L. Dutt v. CIT : [1976]103ITR634(Mad) , observed that where a person has no Explanationn to offer, it may be treated as circumstantial evidence to show that he had acted without reasonable cause and further where the Explanationn is so prima facie unreasonable, it would be open to the Income-tax Officer to levy penalty on the ground that the assessed had no reasonable cause for delay in submission of the return. In Addl. CIT v. Dargapandarinath Tuljayya & Co. : [1977]107ITR850(AP) , a Full Bench of the Andhra Pradesh High Court also observed that though the burden is on the Commissioner to reach the satisfaction as to existence or absence of reasonable cause for delay in filing the returns, the assessed must place before the appropriate authority, matters which are within his exclusive knowledge and that the mere saying that they were prevented by family troubles without any elaboration of the same, or their duration was not enough. The Punjab and Haryana High Court has in Smt. Kamla Vati v. CIT , negatived the applicability of the doctrine of means read in cases falling under section 271(1)(a) and observed that where it was shown that the assessed had failed to furnish the return without reasonable cause, that was sufficient for imposition of penalty. Similar has been the view of the Madhya Pradesh High Court in the decision reported as H. H. Maharani Sharmishthabai Holkar v. Addl. ClT : [1981]129ITR13(MP) and of the Andhra Pradesh High Court in the case CIT v. M. Farahatullah : [1985]151ITR763(AP). In the latter decision, the Tribunal's legal reasoning in arriving at the conclusion that there was no justification for the levy of penalty under section 271(1)(a) because the Revenue had not established the absence of reasonable cause, was held to be illegal and erroneous in law. It was held that the assessed had to satisfactorily explain the delay in filing the return and it was not for the Revenue to establish its failure.

8. Ex facie, it was not obligatory for the firm to get its accounts audited, more so considering the income shown. In any case, it would appear that they could have availed of the services of a professional expert in this regard well in time to enable the filing of the return by due date. Moreover, the correct and complete maintenance of accounts was the responsibility of the assessed and they prima facie could not be dependent upon confirmations, if any, from the Government Departments. After all, the assessed knew what supplies had been effected and considering the 14 (13) months' period available between the closing of the accounting year and the due date for the filing of the return, it could be said that it could well ascertain the position of the goods returned or damaged. Loss suffered in any ensuing year could as well be claimed as such in that year instead of delaying the closure of the earlier year's accounts. (See in this regard two decisions of the Mysore High Court and Orissa High Court, reported as Venkateswara Power Rolling Mills v. CIT : [1974]97ITR168(KAR) and CIT v. Asiatic Trade Combine : [1977]108ITR75(Orissa) respectively.

9. We are conscious that normally it is a question of fact whether there existed reasonable cause or not for non-filing of the return by due date. However, in view of the prima facie erroneous approach adopted by the learned Tribunal in the assessment of absence or existence of reasonable cause and further whether there could at all be said to exist any reasonable cause in the present case, we are inclined to direct the Tribunal to refer the following overall question of law in the facts and circumstances of the present case to the High Court. This is all the more so as the Tribunal observed that the Appellate Assistant Commissioner had not taken into consideration the Explanationn submitted by the assessed while in fact he had considered the same :

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the penalty levied under section 271(1)(a) of the Income-tax Act, 1961?'